Conference Transcript - MCK 2026-03-11

Mike Cherney, Analyst — Lyriank

Good morning everyone. Thank you for joining for this session of the Lyriank Global Health Care Conference.

Britt Vitalone, CFO

Mike Cherney, the Healthcare Tech Distribution Analyst here at Lyriank.

Mike Cherney, Analyst — Lyriank

It's my pleasure, I believe for the last time, for me at least, to have Britt Vidalone, CFO of McKesson. For anyone who missed it, Britt announced his retirement, I believe, last week. I've literally lost all track of time. So we'll certainly miss Britt. We have a number of the members of the McKesson IR team, finance team here, Jenny Dominguez, Paul Atkinson. I thought I saw you come in somewhere. Yep, perfect. So, you know, great team here. Really appreciate everyone coming. And first of all, Britt, congratulations. You know, you'll certainly be missed given the track record that you and the team have had. Maybe as you kind of start a very big picture, you know, think about your eight years in the CFO role, obviously a longer time at McKesson. What are you most proud of in terms of the position of the business that you're leaving with as you step into retirement?

Britt Vitalone, CFO

Yeah, well, first of all, thank you. I think that I'm proud of a lot of things. You know, the company has been around for over 190 years. And I think what we've done over the last several years is build a consistent set of performance. We've built a good track record. We've built good teams within the company. You know, I'm certainly proud of the financial organization. It's a great organization. I'm proud of what they've been able to do. And I think that we have worked on building a portfolio that is focused on a differentiating set of assets that we have. We're smarter with our capital allocation as a result of really applying that strategy in a very consistent way. And ultimately, that's led to really consistent, strong performance over a very long period of time. So I think the company is in a really good spot to continue executing against that. And I look forward to seeing how that plays out over the next several years.

Mike Cherney, Analyst — Lyriank

I know you're sticking around as an advisor, so you're not completely gone with everything, but I appreciate that perspective. And so maybe just diving into the business, you talked about the consistency of the performance. A lot of it from our perspective has been specialty led. As you think about the components of your specialty business, and we appreciate that you broke it out into a new segment so we can track some of that growth. How do you think about where the contributions have come on the combination of pure distribution capabilities versus biopharma services versus some of the leading MSO assets, given that you obviously have been in the market for a significant time owning U.S. oncology and others?

Britt Vitalone, CFO

Yeah, well, I think it all starts with you think about where there's higher innovation from a drug research perspective. So there's high innovation in specialty therapies, there's high investment in those therapies, and that's led to, over the last several years, higher growth in specialty products. We have a very scaled distribution network to provide logistics and supply chain services to support across all channels within health care. You know, across all those channels, specialty revenues in FY25 were about $180 billion. Now, that's continued to grow this year, obviously, as specialty continues to grow. In the more complex, high-dollar specialty, primarily in our MSO, in oncology, multi-specialty, and health systems, our specialty revenues last year were about $90 billion, and they've grown at a compound annual growth rate of 18% over the last five years. So it's the track record of the scaled networks, the efficiency of those networks, the high service and supply levels that we provide to our customers. All of that has been very helpful to the growth of that business. In oncology and multi-specialty, as an example, we have built very strong platforms that are provider-led and providing them not only specialty therapies, but services to support their clinical decisions and specialty therapies. In oncology and multi-specialty, we serve over 14,000 providers now across many different specialties. And then, of course, on the biopharma services side within our technology solutions, you know, we have a number of services, whether that be providing higher access affordability or adherence solutions to support specialty therapies. And recently, maybe we'll talk about this in a minute, recently we added a capability within Cover My Meds, our specialty access and affordability solutions, which is now going to further integrate the capabilities that we have beyond covering those drugs and therapies under the pharmacy benefit to also cover drugs and therapies that are under the medical benefit. So I think there's a lot of capabilities across the company that support specialty. And maybe just start there before we

Mike Cherney, Analyst — Lyriank

hop back onto some of the distribution services. When you think about Cover My Meds, it's had a multi-year significant outperformance thanks to the rise of GLP-1s and your role in helping to provide access with the prior authorization work. As you think about that next leg of access, what does that look like in terms of the ability to continue to make sure that you're not just providing an opportunity for cost management for within the channel, but also just additional services above and beyond given how much affordability has become so much more, at least in the headlines, relative to the drug pricing side.

Britt Vitalone, CFO

Yeah, well, I would just start, maybe just back up a little bit. When you think about the capabilities within Codamide Meds, GLP-1 prior authorizations are one component of that. I think as we've talked about in the past, the revenue contribution to the segment for GLP-1 prior authorizations is somewhere around 11%, so important, but that just speaks to the number of other products and services within the portfolio, whether that be prior authorization for other specialty drugs, and we have many programs that we provide access and prior authorization for or affordability products. And certainly we're working on providing, you know, adherence capabilities as well. And I think adding the capabilities of specialty access and affordability and really focusing on expanding beyond the pharmacy benefit is a good example where we look for opportunities to grow across an integrated set of solutions that we have on a scaled platform. And I think that's really the key is we have spent a lot of time building out a scaled platform of over a million providers, over 50,000 pharmacies, billions of transactions annually that go through Relay, all integrated on a common platform, and all of this going through the workflow of those providers and pharmacies. And I think that's really the key, is that integration capability that we have.

Mike Cherney, Analyst — Lyriank

I constantly marvel at the amount of touch points you have on that side of the business. We'll probably come back, but jumping back to, especially the core North American pharma business, you know, there are a lot of market changes heading into 26, first year of IRA negotiated drugs. You've been fairly transparent in your comments that from a UN economics basis, you were able to successfully negotiate manufacturers to make sure that economics were still met. How do you think, maybe give some more context of what those negotiations brought to light in terms of your ability to continue to prove the value add for the core logistics, core handling capabilities in terms of the network

Britt Vitalone, CFO

that you've created over time. Well, it builds on the long relationships that we have with biopharma and you know whether it be a change to a price on a Part D or a Part B drug you know if we're providing logistics and supply chain services on behalf of those products we're going to be paid a fair value for those services and this is something that has been part of the conversations that we've had and the partnerships that we've had for years and years and years so whether it's IRA or some other reason that there's a change to a whack price the conversations that we have with the manufacturers are still the same it's what services do you need for what products into what channels and what do you need mckesson to do and let's establish a fair value for those services and we'll be paid a fixed fee for those services so in the case of ira you know now you've got drugs that were announced in 2023 so that actually is a longer period of time than we typically would have to work with a manufacturer on a price change and that gave us more visibility into it and more time to work with the manufacturer on exactly what the change was and what they were going to need

Mike Cherney, Analyst — Lyriank

from that. And I appreciate the flagging of this is not the first time you've seen a manufacturer price change. I mean, I know category-wise we all saw insulin a couple years back, but as you think about the next wave of negotiations, be it the next legs of IRA drugs, potential changes on further MFN agreements, what does the push and pull look like to make sure that when you work with manufacturers that you also are providing the ample value that they want so they can get their

Britt Vitalone, CFO

drugs effectively to market? Yeah, there's a great recognition of what we do. And I think people sometimes just think about us just moving boxes from point A to point B. There's so much more involved in that. Some products require special handling or cold chain. And I think the manufacturers also recognize the financial intermediary component that we play where we hold the inventory for them. And when you hold the receivable on behalf of the end customer for them. So there's a huge working capital responsibility that McKesson takes on as well. And there's so many delivery points that McKesson coordinates where a manufacturer, in many cases, can deliver to our redistribution center, our national redistribution center, deliver the product to one point, and then we'll handle all the forward logistics beyond that. So that makes the conversations a little bit easier in a sense. So there's a great recognition of all the different value and touch points that we provide.

Mike Cherney, Analyst — Lyriank

Maybe a little bit of current events. We've all been watching what's been going on in the Middle East, both from just a general geopolitical perspective, but also the change in fluctuations on commodity pricing. You have a business that has a lot of logistics functionality. Can you just remind us what happens in the past or how you work on contracting when you see some of these potential move-in pieces, especially at a bottle level like this on oil and gas and some of the other commodities?

Britt Vitalone, CFO

Yeah, this has happened many times in my career where we've had this. I think we've been able to manage it quite well. Look, we have conversations with both sides, both our customers and our partners. We try to understand what the impact is going to be, try to minimize that impact. I mean, at the heart of what we do as a company, our goal is to provide better access, affordability for our customers and their patients. And so we do that. In some cases, we'll pass the cost on to our customers. In some cases, we'll defer that. But we're always doing something that is at the core, is to provide surety of supply, low-cost, high-quality drugs and medical supplies. And we're trying to do that at the best cost available for our customers.

Mike Cherney, Analyst — Lyriank

Okay. Thinking about the role of biosimilars, as you think about the various different touch points of the organization, how are you thinking about where biosimilars can be most impactful to your business? And I guess maybe to ask a second question, what proactively can McKesson do to enhance the adoption of biosimilars, both within the Part D and Part B setting, if anything?

Britt Vitalone, CFO

Yeah. Well, first of all, we don't make clinical decisions. We provide the ability for our clinicians to have choice and flexibility and surety of supply. I say this a lot, but it really does come back to providing capabilities in terms of flexibility, low-cost, high-quality access. And so in the case of biosimilars, I think they're very additive in the sense that they provide another way for there to be access to drugs. So there's more flexibility and choice. Generally for clinicians, it gives them more clinical choice, depending on what therapy regimen they want to provide for their patients. It generally provides additional surety of supply into the marketplace. and it's generally lower cost for both the providers and for patients. So our job is really to partner with manufacturers to introduce those into the network to provide that choice and that surety of supply, and ultimately, you know, the value for that for customers is a better cost alternative.

Mike Cherney, Analyst — Lyriank

And then maybe things specifically within oncology and ophthalmology retina care because you have greater access given the, you know, psychology, core ventures, PRISM, et cetera. What are some of the strategic decisions look like there as they work to manage the combination of best care for individuals versus opportunities to optimize the business through biosimilar adoption?

Britt Vitalone, CFO

Well, one of the things that we have within those platforms is we have data going through one EHR system, which provides better clinical information for the clinical choices that our doctors and providers make within the practice. And then our job is to use the scale and the capabilities within our GPO and our sourcing capabilities to provide them as much choice as possible so that they can have a choice for how they actually implement those therapies. And I think we do a really great job of that. So we have more capabilities. Those capabilities provide more access to choice for clinicians and ultimately the same or better quality and lower cost.

Mike Cherney, Analyst — Lyriank

Speaking of sourcing, I feel like we don't talk about CLARIS-1 much anymore. 10 year anniversary this year. I feel like that's a good thing because if we're not talking about it, it probably just means, I don't wanna say it's on autopilot because I know it's hard work, but it means that it's doing what it's supposed to be doing. Can you just give us a quick update on some of the activities that Claris1 is pursuing now as you continue to improve your sourcing functionality?

Britt Vitalone, CFO

Yeah, you know, it has been 10 years, and I think it's been a tremendous venture for the company, for our partners, and for our customers. You know, we have good scale. We have continued to improve our sourcing capabilities in the way that we negotiate and partner with manufacturers, the size and choice that is on the platform now. And additional things that we're doing is a good example, you know, we partner with U.S. antibiotics to partner to bring domestic production to, you know, to our customers for antibiotics, which would give greater access and more surety of supply for those particular drugs. So that's a good example where we're partnering with a domestic firm to provide that additional surety of supply at a better cost, and that's a good example of how the partnership is continuing to grow.

Mike Cherney, Analyst — Lyriank

Maybe if we think about your customer base, you have an extremely wide group of organizations. You obviously service now two of the largest male pharmacies, But the independent pharmacies have long been the key component of your base, of your ability to service, your ability to add incremental value add. How do you think about the health of your independent customer base right now? And how are you thinking about the additional services you're continuing to roll out to them, given that they are obviously different entities than some of the larger national pharmacies that you tend to work with?

Britt Vitalone, CFO

Yeah, well, their needs are different. And so, obviously, we've had a long history through Health Mart of working with independent pharmacies and providing them a whole, you know, source of capabilities, whether it could be in inventory tracking, it could be medication adherence capabilities. Obviously, drug spend is one of those. They're a very strong and vibrant group. They've gone through a lot over a number of years, but they've continued to reinvent themselves and thrive through that. They're an important node to the community care. Again, we talk about what McKesson is focused on is access and affordability in the community setting. They're an important node to that community setting, and so we have continued to work very closely with them and closely on the capabilities that we have that will address the needs of independent pharmacy, and we think that that's a very important part for a thriving, you know, community set of care.

Mike Cherney, Analyst — Lyriank

And as you think about their pain points, GLP-1s seem to be a pain point for every pharmacy, but you would think that there's more pain points given the mismatch of pricing and product availability over time. Are there areas, whether it's GLP-1s or others, where your ability to create excess value becomes even more important because of potentially upside-down economics that they have to deal with just given the nature of category and drug class?

Britt Vitalone, CFO

Well, one of the things that we do through HealthMart and HealthMart Atlas is reimbursement services and reimbursement capabilities. So that's another opportunity for us to provide them more choice and more access to low-cost reimbursement options. So that's a good example of where we can, you know, across the network provide some of that scale.

Mike Cherney, Analyst — Lyriank

Maybe coming back to the Pharmacy Tech Solutions business for a bit, I mean, we highlighted some of the dynamics that cover my meds, but Relay Health is the backbone of so much that goes on on the pharmacy side. As you think about the role of Relay Health in particular, how does that platform, the technology platform, evolve over time? And it seems like an area where you could apply AI to make it even more valuable. How are you thinking about, whether it's there or other aspects of the tech platform, your opportunity to monetize AI in a way that that makes McKesson a better offering to clients?

Britt Vitalone, CFO

So, Relay I think is just one important aspect to a really scaled platform. You know, obviously it has the connectivity into 50,000 different pharmacies. And so that's an important part, but you know, it's really the integration of all the different components within CoverMyMeds, whether that be Relay Health, whether that be our prior authorization and access services or affordability solutions. We have begun to implement AI in many different places, You know, Cover My Meds now has chatbots, which are addressing over 35% of all the volume that comes in. So that's a way of us being more efficient and, again, integrating that technology into the platform as well. We're using AI in our call centers and in our verification programs. It's actually helped the efficiency of our employees. Now employees are handling more than 120 more cases than they were a year ago as a result of some of this technology. So those are just two examples of where we're using it. I think over time we'll continue to implement that into our products. Again, the fact that we have such scaled networks and the durable foundation that they provide, continuing to implement technology across all parts, not just relay, but all parts of it are going to be important for us.

Mike Cherney, Analyst — Lyriank

And as you think about your broader technology offering, you talked on a piece that covered my med. We have the INOMED EHR, which integrates a lot of your organizations. And then you have ONTATA, which I know isn't just a technology platform, but it's intended to encompass all of your various different oncology components. Where does ONTATA sit today, and how does ONTATA create monetization opportunities, revenue opportunities for McKesson?

Britt Vitalone, CFO

Yes, so ONTATA ends up being that central focus point for the platform in U.S. oncology. It manages the EHR, which all of our providers are practicing on a single EHR. It helps to analyze and enrich and add insights to that data, both for clinical purposes as well as for opportunities to partner with manufacturers as they continue to look at innovative ways to develop their drug portfolio. That's a way that we can monetize that. But the critical component of that is the fact that all of our providers are practicing clinically on that that data is going through there it's being enriched and insights are being added real world evidence and so for clinical purposes it makes it stronger but also it provides opportunities for manufacturers as they continue to innovate their their drug portfolios as you

Mike Cherney, Analyst — Lyriank

think about the expansion there like what are some of the opportunities or maybe even looking back where has ontata expanded where that incremental value has come into place i know you have some joint ventures on the clinical research side. Is that how we should think about the continued mushrooming and expansion of Ontata in terms of a value-added entity, whether it is sold outside

Britt Vitalone, CFO

or just used for the umbrella? It's really, it's leveraging the integration of the data across the platform, whether that be in the practice themselves. It could be used for GPO capabilities to provide better access and cost for our providers. Certainly the clinical data and the enrichment of of that and the real-world insights that are going through that. So I think, again, it's sort of that central fulcrum point for all the activity within the platform.

Mike Cherney, Analyst — Lyriank

And how has the JV gone relative to the work you're doing with Sarah Cannon Institute on some of the clinical trial opportunities within U.S. oncology?

Britt Vitalone, CFO

Yeah, I think we're really happy with that. We've got, you know, well over three-quarters of the providers within U.S. oncology now are doing clinical trials in some way. There's an opportunity for them to continue to accrue more patients. the partnership has expanded the clinical trial capabilities. It's certainly added site management opportunities. And so I think it's gone really well. There's an opportunity for it to continue to grow, to continue to bring more providers in to do clinical trials, to continue to accrue more clinical trials. I think we're pretty excited about the opportunities there.

Mike Cherney, Analyst — Lyriank

Maybe turning to MedSurg, you've been fairly transparent in the steps in the process. As you think about preparing that business to be a separate business, where are we right now in terms of the stand-up efforts, and how should we think about the next level of milestones on the organizational side, leadership appointments, capital structure, et cetera?

Britt Vitalone, CFO

Well, I'll start with the leadership. The leadership is in place. The leadership that's been running that business for the last several years has done a great job. They're very close to the business, and I think we may make additions, obviously. any company, you become independent, you add capabilities or things that you need to do, you're going to add additional leaders to that, but the leadership is really in place for that today. We've done a lot of the hard work already, so we've identified the services that needed to be done in a transitional way. We're executing against those TSAs, so they're in place. We're executing against those, and now we're moving to the next stage, which is really preparing the the capital structure of the company, and that work is ongoing today. We've done a lot of the boring things like put controls in place and do carve-out audits. Super important, obviously, to prepare a company to be independent. Lots of hard work that goes into that, but all that is in place as well. So we're focusing on the company, the operations, improving the performance of that business, and getting it ready as we go forward into the next stage.

Mike Cherney, Analyst — Lyriank

you'll be S1s and things like that. Boring is not always a bad thing. Boring is super important, trust me. But relative to the business, I mean, it's still part of McKesson. Obviously, it's an elongated process just because of the nature of standard business up. What's going on in that business in terms of the strategic investment, strategic prioritization? There's been a number of restructurings you've done given the nature of the business. How are you thinking about making sure that business has the best footing once it is a standalone company?

Britt Vitalone, CFO

Yeah, I think that the products and services and our capabilities that we have are really, really strong. It's identifying the markets and channels that we think we can have differentiated growth in. You know, and some of the channels that we're in today, like the physician office, is not growing as fast as it once was. And it's still a vibrant opportunity for us. But there are other channels of, you know, physicians affiliated with health systems as an example where, you know, we have an opportunity to continue to grow there. So I think it's really focusing on, you know, the cost structure I think is in a good spot, continuing to focus on that as we stand it up, but really focusing on our go-to-market capabilities in some of these higher growth segments. We have a very strong private brand portfolio. Continue to add to that. That provides more choice and better cost for our customers. continuing to focus on our sourcing capabilities outside of just private brand, but across, continuing to focus on the operations of the business. We've made a lot of investments in the operations of the business over the last several years. So I think the business is structurally in a good spot. It's really figuring out those strategies in those higher growth markets where we have really good opportunity to grow.

Mike Cherney, Analyst — Lyriank

Turning back to the recent MSO acquisitions, where are we in the integration, both of CoreVentures, FCS, and Prism, in terms of McKesson's ability to make them better businesses?

Britt Vitalone, CFO

Yeah, also good businesses that we've acquired. Good business is a star, yes. Right, yeah. We have done the integration work in terms of bringing the sites on, bringing them on to our contracts, getting the drug synergies. You know, we'll continue to do that over time. So the integration work has gone very, very well. We're in the phase now of how do we grow those businesses, you know, bringing them in into McKesson with the scale and the set of solutions that we have. There's an opportunity for them to continue to grow and to add to them. So we added the Spokane Eye Clinic as an example, and we'll continue to add additional providers to that platform. So I think it's gone really well. We're pleased with the performance in the first year. We continue to feel good about the three-year roadmap that we gave you on the contribution. I think that they're at or maybe even slightly ahead of where we guided originally. So we're pleased with it.

Mike Cherney, Analyst — Lyriank

And you talked about the additions, and I think one of the underappreciated things over time, especially your ownership of U.S. Oncology, is the organic growth. It's one thing to buy chunky assets. FCS is obviously very chunky, but it's not a thing when you keep adding two doc practices, five doc practices. Those add up. As we think about these two assets, is there still additional platform capabilities, be it in smaller pieces or chunkier assets, to continue to grow, continue to scale on their own?

Britt Vitalone, CFO

The opportunities really are going to be on the clinical capability side. So we talked about clinical trials within U.S. Oncology. Are there other clinical research services and capabilities that we can add to that? We're studying that. We're going to put into place things that we think we have a differentiated capability for. But certainly in both of those instances, both on the vision side and on the oncology side, there is an opportunity to continue to advance and add clinical capabilities.

Mike Cherney, Analyst — Lyriank

We talked about AI relative to the outward-facing side and the ability to have as a customer-facing entity. You had started to touch on AI, especially on the most recent earnings call, inward facing, operational efficiencies, working capital management, et cetera. How should we think about where the priorities will lie internally on the AI front, given that you have a business that is incredibly scaled and has a ton of automation, but continuous process improvements can never hurt?

Britt Vitalone, CFO

Yeah, and we've been investing in the business for several years. And if you look at the culmination of all of those investments over time and you look at the operating leverage that's come out of that, it's very significant. In Investor Day, I talked about the fact that not only are we investing in some of these capabilities, but our operating expenses as a percentage of gross profit has improved 1,200 basis points in the last five years. In the recent earnings call, I talked about operating expense leverage improving 138 basis points. So it's no single one investment that we're making or single capability. It's a culmination of all these. It could be things like automating demand planning. It could be automating our procurement processes. It could be things that we do in the back office around chargebacks, which is a very important process as well. It could be a whole number of financial or other IT transactions that we're automating. So we're looking at all of these. All of these have had an impact over time. We'll continue to make investments into this because it is driving operating expense leverage.

Mike Cherney, Analyst — Lyriank

Well, Britt, I think we've reached the end of time. Only hope that your predecessor will have the same level of consistency that you brought to the company and helped Shepard. So thank you for everything, and best of luck. Thanks so much, Mike. Appreciate it. Thank you, everybody.